Preliminary Trading Guide

Transcription

1 Preliminary Trading Guide for SMR Pro 2 BETA This Trading Guide will explain the new features and tools that are now part of the BETA version of SMR Pro 2. The following sections are included because they pertain to the new features. More sections will be included in the released version of the Trading Guide. Section 3 The TrendRider Section 4 Trade Set-Ups Section 5 Tips for Better Trade Entries Section 7 The Momentum Report Section 8 Exit Tools Section 10 Weekly Charts

2 Section 3 TrendRider pg. 2 SECTION 3 - The TrendRider The TrendRider is SMR Pro s automated trend detection tool. Up-Trend in GREEN Down-Trend in RED LC06M Live Cattle (08/01/ /18/2006) The default Color Settings for TrendRider are: GREEN Bars for an UP Trend RED Bars for a DOWN Trend BLACK Bars for a NEUTRAL Trend To turn the TrendRider ON or OFF, and to change the Color settings, use the Set Bar Colors function under the Colors menu.

3 Section 3 TrendRider pg. 3 How Well Does the TrendRider Really Work? The TrendRider is a very useful tool, but like any automated trading tool, it does not work perfectly. If it did, we would call it something else like the Holy Grail. To create a decent trend detection tool, we had to balance out several different objectives: We want to catch as many good moves as we reasonably can We want to avoid as many false starts as we reasonably can We want to stay Neutral during choppy periods We want to end the Trend at the right time not too early, and not too late After a lot of work, frustration, and trial and error, we have developed a system that we think works reasonably well across a variety of charts. That is, it works pretty darn good, given how hard we found the task of designing a really good system to be. The markets aren t meant to make this job easy, but to make it difficult. Here s what you can realistically expect from the TrendRider: When the market is trending very well, it will usually work extremely well It will often stay Neutral, like it s supposed to, during choppy periods It will sometimes give a string of false starts during choppy, congested periods It will sometimes miss a good short-term move It will always catch at least a decent portion of a good-sized move So, be realistic about what you expect that it can do for you, and you ll find it to be a very useful tool. Also, keep in mind that it is just one tool out of many. Just as you don t rely on a single oscillator to make all your trading decisions, you don t rely on just the TrendRider either. Wait for the Set-Ups You will find that the performance of the TrendRider improves considerably if you wait for good set-ups to develop after the TrendRider has turned Bullish or Bearish. That is, don t just jump into a market as soon as a bar turns Green or Red. Wait for the set-ups that we describe in this Trading Guide. It s a Work in Progress We constantly work to improve SMR Pro, and that includes TrendRider. Even though we re pretty pleased with how it works, we will continually strive to refine it.

4 Section 3 TrendRider pg. 4 Congestion or Trend? Trending Congestion Break-Out GC07Z Gold (04/27/ /14/2007) Here s an example of where the TrendRider has some false starts during a period of congestion. As soon as the price action breaks out of the congestion area, the market trends very well, and the TrendRider catches the move from the beginning. So, whenever TrendRider gives you a false start or two, stand aside until the market has broken free from an obvious area of congestion.

5 Section 3 TrendRider pg. 5 Trade-Able Mode or Stay-Away Mode? ZS06N Soybeans (09/27/ /14/2006) The technical term we use to describe a chart like this is Butt Ugly. This is a severe case of Chop-Itis. There is no system in the world that s going to detect good trades on this kind of chart. We have found that the TrendRider makes a good canary in the coal mine to determine if a chart is trade-able or not. Just look at the recent action on the chart. If the TrendRider has generally worked well, it s a trade-able chart. If the TrendRider hasn t worked well at all, it s a stay-away chart.

6 Section 4 Trade Set-Ups pg. 6 SECTION 4 - Trade Set-Ups In this section, we give very specific information about how we enter trades. There are basically only two ways we enter a trade: 1) The SL Turn We wait for the SL indicator to turn in the direction of the primary trend 2) The SL Cross We wait for the SL Indicator to cross the DL indicator But, there are many variations in the way the trades can set up. To keep things simple, we ve defined the Seven Key Set-Ups. First, we ll go over the basics of how we enter on an SL Turn or SL Cross. We ll also introduce a variation on the SL Cross called the Wiggle-and-Cross. Then, we ll go over the specifics of the Seven Set-Ups in some detail. NOTE No. 1: It s Pretty Simple You don t need to learn or remember all the differences in the set-up types to be able to use SMR Pro. We ve designed a Momentum Report system that keeps it simple and easy to follow. For instance, we spell out in the report whether you re looking to enter on the SL Turn or SL Cross for each trade alert, and that s all you really need to know for now. As you get more familiar with SMR, you ll want to look back over this section and learn some more about the signals. It will make more sense to you then. For now, just skim over this information to get a general idea of how the set-ups work. NOTE No. 2: It Gets Better OK, so the information in this section is a little dry and technical. But it s necessary to lay the foundation first, by learning the basics. Then we can have more fun in the later sections. That s where we ll give tips and specific ideas for what we re really looking for on the charts.

7 Section 4 Trade Set-Ups pg. 7 The SL Turn TrendRider confirms that Bullish Trend is in progress STOP ENTRY: We set a stopentry price a few ticks above the day s High SET-UP (LONG): After we see a pull-back in price, SL Turn: Buy Set-Up We wait for the SL to Turn UP The SL Turn is the simplest and most basic trade set-up. When TrendRider confirms that the market is trending, we wait for a pull-back in the price action against the trend. Next, we wait for the first bar where the SL turns back in the direction of the trend. The entrystop price is just beyond the High (for a Long trade) or Low (for a Short trade) of today s price bar. We enter the trade the next day, IF the price hits our stop-entry order SL Turn: A Successful Buy Set-Up

8 Section 4 Trade Set-Ups pg. 8 The SL Turn (cont d) TrendRider confirms that Bearish Trend is in progress STOP ENTRY: We set a stopentry price a few ticks below the day s Low SET-UP (SHORT): After we see a pull-back in price, We wait for the SL to Turn DOWN SL Turn: Short Set-Up We enter the trade the next day, IF the price hits our stop-entry order SL Turn: A Successful Short Set-Up

9 Section 4 Trade Set-Ups pg. 9 The SL Cross A somewhat more conservative way to enter a trade is to wait for the SL to cross the DL. We call this approach the SL Cross. As soon as SL has crossed DL, set Stop-Entry level a few ticks above the day s High SL Crosses the DL from below. DL may be Above or Below Zero The SL Cross: A Successful Long Set-Up We often see some nice very moves develop on a chart after the SL has crossed the DL. The reason this is a more conservative play: Sometimes the SL will get close to the DL, but then turn back the other way. Waiting for the SL to cross can often save you from entering a losing trade.

10 Section 4 Trade Set-Ups pg. 10 The SL Cross (cont d) As soon as SL has crossed DL, set Stop-Entry level a few ticks below the day s Low The SL Crosses the DL from Above. The DL may be Above or Below Zero Wait for SL to Cross Down Below the DL The SL Cross: A Successful Short Set-Up Here s a nice SL Cross trade from the short side. As we indicated on these examples, the DL can be either above or below Zero for a good SL Cross trade.

11 Section 4 Trade Set-Ups pg. 11 The Wiggle-and-Cross Sometimes the SL turns, then backs away, then turns again toward the DL. If the SL makes it all the way to cross the DL, we call that the Wiggle-and-Cross. As soon as SL has crossed DL, set Stop-Entry level a few ticks above the day s High SL Wiggles Below the DL, then SL Crosses the DL 1 st SL Turn Fails Wait for SL to Cross Up Above the DL Wiggle-and-Cross: A Successful Long Set-Up With the Wiggle-and-Cross pattern, it s as if the market is trying to make up it s mind, then decides to go with the primary trend again. Sometimes you enter the market on an SL Turn, then the price turns against you. Instead of getting in on the next SL turn, it s better and safer to wait for the SL Cross.

12 Section 4 Trade Set-Ups pg. 12 The Wiggle-and-Cross (cont d) As soon as SL has crossed DL, set Stop-Entry level a few ticks below the day s Low SL Wiggles Above the DL, then SL Crosses the DL 1 st SL Turn Fails Wait for SL to Cross Down Below the DL Wiggle-and-Cross: A Successful Short Set-Up Here s a classic Wiggle-and-Cross from the short side. When the SL is wiggling before crossing the DL, it s an indication of consolidation in the price pattern. When the SL finally crosses the DL, it signals that the consolidation is complete.

13 Section 4 Trade Set-Ups pg. 13 The Seven Key Set-Ups An SMR set-up can be an SL Turn, an SL Cross, or a Wiggle-and-Cross. Still, there can be a lot of variations on how these set-ups can show up, depending on: If the DL is above or below Zero If the DL is heading Up or Down If the SL is above or below the DL But to keep it all from getting too complicated, we have found it useful to define Seven Key Set-Ups. Any set-up that we see on the chart will be one of these 7 patterns. First Turn Type 1 Type 2 Type 3 Type 4 Type 5 Type 6 The First Turn is a very important set-up to look for. It often marks a long-term high or low on the chart. The Type1 is the deepest pullback in price. The Type 2 is also a deep pullback in price, but not as deep as the Type 1. The Type 3 is a Wiggle-And-Cross set-up. The Type 4 is the most basic, and most common, SL Turn set-up. The Type 5 is also an SL Turn set up, where the trend strength is stronger than the Type 4. The Type 6 is the most shallow pullback in price, and usually occurs within a strong trend.

14 Section 4 Trade Set-Ups pg. 14 SMR Pro Makes It Easy Don t worry about remembering the details of these set-ups. SMR Pro makes it easy by pointing out the set-ups for you in the Momentum Report. The Momentum Report also tells you, for each set-up, whether you are watching for an SL Turn or an SL Cross. With a few days experience at using the report, you ll see that it s quite easy. We ve designed the report to tell you what you need to know, without having to remember anything about the specific signals. The only thing you ll really need to keep in mind is that the Type 1 through Type 6 set-ups are numbered that way for a reason. They go in order from: Type 1 Deepest Pullback Trend Weakest Type 6 Lightest Pullback Trend Strongest How the TrendRider affects the Seven Key Set-Ups The Type 1 through Type 6 Buy set-ups can only be triggered if the TrendRider is Bullish. The Type 1 through Type 6 Sell set-ups can only be triggered if the TrendRider is Bearish. The First Turns are a little different.. The First Turn Buy set-up can be triggered if the TrendRider is Neutral or Bullish. The First Turn Sell set-up can be triggered if the TrendRider is Neutral or Bearish. Next, we ll look at examples of the Seven Key Set-Ups.

15 Section 4 Trade Set-Ups pg. 15 The First Turn Set-Up First Turn Buy We call this set-up the First Turn because it s the first SL Turn after the DL has crossed up above Zero. The First Turn Buy can occur whether the TrendRider is NEUTRAL or UP. The 49-MA must be UP in order to have a First Turn Buy. Also, this set-up is looking for the first SL Turn where the SL is below the DL when it turns. DL crosses Zero SL turns UP Here s a First Turn Buy where the TrendRider is Bullish. The First Turn is one of our favorite set-ups. It often marks a low or high that can hold for several months. This Low may hold for many weeks or months We highly recommend that you study a lot of charts, and notice all the places where the First Turn marked a high or low that held for a long time. By doing that, you will build a lot of confidence in this set-up. DL crosses Zero SL turns UP

16 Section 4 Trade Set-Ups pg. 16 The First Turn Set-Up (cont d) First Turn Sell The First Turn Sell can occur whether the TrendRider is NEUTRAL or DOWN. The 49-MA must be DOWN in order to have a First Turn Sell. Also, this set-up is looking for the first SL Turn where the SL is above the DL when it turns. DL crosses Zero SL turns DOWN IMPORTANT: First Turns can occur at the beginning of a new trend, or in the middle of established trends. This First Turn marked a High that held for many weeks DL crosses Zero SL turns DOWN

17 Section 4 Trade Set-Ups pg. 17 The Type 1 Set-Up Type 1 Buy The Type 1 Set Up indicates a deep pullback in the price action. The DL has dipped below Zero, and the SL is below the DL. Instead of getting in on the SL Turn, we wait for the SL Cross. DL below Zero SL crosses DL Type 1 Sell In the Type 1 Sell, the DL has popped above Zero, and the SL is above the DL. Again, instead of getting in on the SL Turn, we wait for the SL Cross. DL above Zero SL crosses DL

18 Section 4 Trade Set-Ups pg. 18 The Type 2 Set-Up Type 2 Buy The Type 2 Set Up indicates a deep pullback in the price, but not quite as deep as Type 1. The DL has dipped below Zero, but the SL is above the DL. Since the SL has not yet crossed below the DL, the only option is to wait for the SL Turn. DL below Zero SL turns Up above DL NOTE: This is a rare set-up. The SL will almost always cross below the DL before turning up, when the DL is below Zero. Type 2 Sell DL above Zero SL turns Down below DL Here s the Type 2 from the Sell side. The DL has popped above Zero, but the SL is below the DL. Since the SL has not yet crossed above the DL, the only option is to wait for the SL Turn. NOTE: The Type 2 Sell is also a rare set-up. The SL will almost always cross above the DL before turning down, when the DL is above Zero.

19 Section 4 Trade Set-Ups pg. 19 The Type 3 Set-Up Type 3 Buy The Type 3 Buy is a Wiggle-and- Cross Buy with the DL above Zero. DL above Zero Type 3 Sell The Type 3 Sell is a Wiggle-and- Cross Sell with the DL below Zero. DL below Zero

20 Section 4 Trade Set-Ups pg. 20 The Type 4 Set-Up Type 4 Buy The Type 4 Buy is the most common type of SL Turn Buy setup. The DL is above Zero, and heading Down. The SL is usually below the DL, but can be above the DL. DL above Zero, and heading Down Type 4 Sell The Type 4 Sell is the most common type of SL Turn Sell setup. The DL is below Zero, and heading Up. The SL is usually above the DL, but can be below the DL. DL below Zero, and heading Up

21 Section 4 Trade Set-Ups pg. 21 The Type 5 Set-Up Type 5 Buy The Type 5 Buy can be a powerful Buy signal. The DL is above Zero, and heading Up. Because the DL is heading UP, it indicates a stronger trend than the Type 4 set-up The SL is below the DL. DL above Zero, and heading Up Type 5 Sell SL below DL Here s the Type 5 Sell set-up. The DL is below Zero, and heading Down. Because the DL is heading DOWN, it indicates a stronger trend than the Type 4 set-up The SL is above the DL. SL above DL DL below Zero, and heading Down

22 Section 4 Trade Set-Ups pg. 22 The Type 6 Set-Up Type 6 Buy The Type 6 set-up indicates a light pullback within a strong trend. The DL is above Zero, and heading Up. The SL turns Up above the DL. SL turns Up above DL Type 6 Sell DL above Zero, and heading Up The Type 6 Sell set-up. The DL is below Zero, and heading Down. The SL turns Down below the DL. This can be an especially powerful Short side set-up. DL below Zero, and heading Down SL turns Down below DL

23 Section 5 Tips for Better Trade Entries pg. 23 SECTION 5 - Tips for Better Trade Entries In this section, we ll get into the really good stuff. We ll show you our bag of tricks that we ve developed over the years of looking at, and trading from, the SMR charts. We ll also look at two valuable indicators that are exclusive to SMR Pro: The SLT and SLX.

24 Section 5 Tips for Better Trade Entries pg. 24 Using the SL Turn Value and SLT Indicator The SLT Indicator lets you see visually what the next day s Closing Price must be to Turn the SL UP or DOWN by one point. Once you get familiar with using the SL Turn to enter trades, you may want to start using the SLT Indicator. The SLT value lets you get a jump ahead and anticipate a turn in the SL, instead of waiting for the set-up to confirm. To anticipate the trade, you can place a Stop Order at, or just beyond, the SLT value. The numeric value of the SL Turn is displayed in the control panel, in the top portion of the chart. UP means that the SL is currently heading Down, and the SL Turn is the next day s closing price that will turn the SL back UP. DOWN means that the SL is currently heading Up, and the SL Turn is the next day s closing price that will turn the SL back DOWN. Use the SLT button at the bottom of the chart to turn the SLT Indicator ON and OFF.

25 Section 5 Tips for Better Trade Entries pg. 25 Using the SL Cross Value and SLX Indicator The SLX Indicator lets you see visually what the next day s Closing Price must be for the SL to Cross the DL. Once you get familiar with using the SL Cross to enter trades, you may want to start using the SLX Indicator. The SLX value lets you get a jump ahead and anticipate an SL Cross, instead of waiting for the set-up to confirm. To anticipate the trade, you can place a Stop Order at, or just beyond, the SLX value. The numeric value of the SL Cross is displayed in the control panel, in the top portion of the chart. UP means that the SL is currently below the DL, and the SL Cross is the next day s closing price that will cause the SL to Cross UP over the DL. DOWN means that the SL is currently above the DL, and the SL Cross is the next day s closing price that will cause the SL to Cross DOWN below the DL. Use the SLX button at the bottom of the chart to turn the SLX Indicator ON and OFF.

26 Section 5 Tips for Better Trade Entries pg. 26 Judging the Quality of the First Turn Set-Up One of our favorite set-ups is the First Turn. Here are some features of the set-up that make for a better probability that a good price move may follow the First Turn. Look for set-ups where the TrendRider has already turned Bullish or Bearish before the SL turns. A DL that s heading UP (for a Buy) or DOWN (for a Sell) is a very good sign of strength A high DL value (greater than +15 for a Buy) is a good sign of strength A First Turn Set-Up can still be a good place to enter a trade, even without the above signs of strength. But, when you have a choice bewteen two or more First Turns, you can use these factors to help you pick the best ones to trade.

27 Section 5 Tips for Better Trade Entries pg. 27 The SL Pullback The SL Pullback is a great chart feature to look for. It is very often a good predictor of a nice move in price. Pullback in Price is Shallow Always be on the lookout for the SL Pullback. It is very often an excellent sign of Strength in the Trend A Strong Price Thrust often follows SL makes a definite Pullback The SL Pullback is a divergence between the price action and the action of the SL SL Pullback: A Successful Long Set-Up What we re looking for is a clearly defined pullback in the SL, but little to no pullback in price. Price may even continue higher slightly as the SL pulls back. What we have in the SL Pullback is a show of strength in the trend. The SL is pulling back, but the price is not pulling back with it. Or at most, the price is pulling back only slightly, compared to the angle of the SL pull-back. This is very often a sign that the price is getting ready to move higher (in the case of a Bull Trend) or lower (in the case of a Bear Trend). This is a highly reliable chart signal, so you should always be on the watch for it. This difference in the two angles (the angle of the price action vs. the angle of the SL) is known as a divergence. The price action is diverging from, or behaving differently than, the action of the SL.

28 Section 5 Tips for Better Trade Entries pg. 28 The SL Pullback (cont d) Pullback in Price is Shallow Strong Down-Move in Price Pullback in the SL is Steep SL Pullback: A Successful Short Set-Up Here is an excellent example of a Short Side SL Pullback. Notice how the angle of the Price Pullback is much more shallow than the angle of the SL pullback.

29 Section 5 Tips for Better Trade Entries pg. 29 The Line Break Sometimes a chart will be extra helpful to us and form a fairly straight line across the tops or bottoms of the price bars, during a price pullback. When this happens, it s a good idea to draw a line on the chart, just a little bit beyond the price bars. Use the break of this line as an entry point to enter the market. Line Break: A Successful Long Set-Up In a case like the one shown here, getting in on the SL Turn was a little too early. Waiting for the Line Break was a lower risk entry, at a better price.

30 Section 5 Tips for Better Trade Entries pg. 30 The Line Break (cont d) Line Break: A Successful Short Set-Up Here s a nice Line Break entry from the Short Side. A Line Break entry can occur before the SL Turn, after the SL Turn, or at the same time. The Line Break usually is a better way to time the trade entry, when the chart offers you the formation.

31 Section 5 Tips for Better Trade Entries pg. 31 The SL Spike Price pulls back close to the 49-MA The SL drops to a long-term Low Point SL Spike: A Successful Long Set-Up When the SL makes a deep pullback, and the pullback is deeper than any previous pullback for 50 or more bars, it s a good idea to pay attention to it. We call this the SL Spike. It often marks a good entry point. This is an especially good set-up when the price pulls back to the vicinity of the 49-MA, and the TrendRider stays Bullish or Bearish during the pullback.

32 Section 5 Tips for Better Trade Entries pg. 32 The SL Spike (cont d) Price pulls back to the 49-MA The SL spikes to a long-term High Point SL Spike: A Successful Short Set-Up Here s a nice SL Spike from the Short Side. Notice how the price forms a nice consolidation pattern just underneath the 49-MA. The SL Spike can be an especially good Short Side set-up.

33 Section 5 Tips for Better Trade Entries pg. 33 Scaling Into a Trade with the 1-2-Punch SL Cross Entry Price 2 nd Entry is on the SL Cross 1 st Entry is on the SL Turn SL Turn Entry Price Here s an idea for using the SL Turn and SL Cross to scale in to your trade. Enter half of your position on the SL Turn. Then, if the price moves in your favor, enter the other half of your position on the SL Cross. If the price never makes it to the SL Cross entry level, you will have cut your trade risk in half.

34 Section 7 The Momentum Report pg. 34 SECTION 7 The Momentum Report The SMR Momentum Report makes it easy for you to narrow down and focus on what is most important to you. Instead of having to flip through every chart, every evening, you can save time and effort by filtering the charts first. We believe that the SMR Momentum Report is the single most powerful tool in SMR Pro. We have put a lot of thought in effort in making it straightforward and easy to use. You can view and rank Futures or Stock Symbols by: Daily Buy/Sell Alerts Daily Relative Strength Rating Weekly Relative Strength Rating The Momentum Report is actually a set of many different Reports, depending on how you want to view and rank the charts. For Futures, the additional options are: View and Rank the Most Active Futures contract month for each Futures Market View and Rank only the Futures Symbols in a Given Sector View and Rank only the Futures Symbols on a Watch List For Stocks, the additional options are: View and Rank all the Individual Share Stocks View and Rank only the Stocks in a Given Sector View and Rank only the Stocks on a Watch List

35 Section 7 The Momentum Report pg. 35 Daily Alert Report Select the Daily Alert Report Type An Asterisk (*) indicates a Confirmed Set-up Select BULLISH for Buy Alerts or BEARISH for Sell Alerts With the Daily Alert Report, you can quickly identify and scan all the charts that have a potential or confirmed set-up for the next day s trading. The Daily Alerts are sorted in order: the First Turns come first, followed by Type 1 through Type 6 set-ups, and then the New Trend Alerts. (A New Trend alert means a Bullish or Bearish trend is 5 days old or less, but there is no set-up alert on the chart yet). The Type 1 through Type 6 alerts are identified by the type of entry we re watching for: SLT for an SL Turn, and SLX for an SL Cross. For example, a Type 1 alert is called SLX-1 because we always look for an SL Cross for a Type 1 entry. Similarly, a Type 4 alert will always be called SLT-4. IMPORTANT: When an alert is marked with an asterisk (such as SLT-4*), this means that the set-up has been confirmed. That is, an SL Turn or SL Cross has already confirmed the set-up. Otherwise, when there is no asterisk, that means we have a potential set-up, but it has not yet been confirmed.

36 Section 7 The Momentum Report pg. 36 Daily Relative Strength Report Select the Daily Relative Strength Report Type Select a BULLISH or BEARISH Report This Report sorts the charts based on the Relative Strength on the Daily charts. The first number you see in the Daily R/S column is the Relative Strength rating for that chart. This number can range up to +100 or greater for a very strongly Bullish chart, and down to -100 or lower (more negative) for a very strongly Bearish chart. The next number you see in the Daily R/S column is the Percentile Ranking of the Relative Strength. For Futures, that will be the ranking versus all the Most Active contract months. For Stocks, it will be the ranking versus all the Individual Shares stocks symbols. Individual Shares do not include Index, ETF, or ProShares symbols. A Bullish Report will rank all Daily relative strengths that are greater than Zero. A Bearish Report will rank all Daily relative strengths that are less than Zero.

37 Section 7 The Momentum Report pg. 37 Weekly Relative Strength Report Select the Weekly Relative Strength Report Type Select a BULLISH or BEARISH Report This Report sorts the charts based on the Relative Strength on the Weekly charts. The Relative Strength rating and Percentile Ranking work just the same way as on the Daily Relative Strength Report. A Bullish Report will rank all Weekly relative strengths that are greater than Zero. A Bearish Report will rank all Weekly relative strengths that are less than Zero.

38 Section 7 The Momentum Report pg. 38 View Charts from the Report Double-Click on any Symbol to View the Chart Once you re in the Chart-Viewing Mode, you can. Return to the Report Window View Weekly and Daily Charts Scroll thru all Symbols in the Report

39 Section 7 The Momentum Report pg. 39 Viewing Stocks: Indexes, ETFs, and ProShares It is very simple to view and rank the Stock Index, ETF, and ProShares symbols. Select any Report Type Select the Stock Sector option Select INDEX, ETF, or PROSHARES Select a BULLISH or BEARISH Report

40 Section 7 The Momentum Report pg. 40 Weekly CTI Momentum Report There is one other Momentum Report Type, the Weekly CTI Momentum Report. We ll discuss what the CTI is, and what this Report tells you, in the section on the Weekly Charts.

41 Section 8 Exit Tools pg. 41 SECTION 8 Exit Tools Without a good plan or system, deciding how and when to exit a trade can be difficult and nerve-wracking. SMR Pro provides you an excellent tool for helping make your exit strategies a lot easier, more systematic, and more objective. The SMR Stop-Loss tool is a proprietary, built-in feature. The software automatically generates and updates stop-loss lines and displays them on your chart. Using a Stop-Loss tool helps you be more consistent in your trading methodology. And better consistency, in trading, usually means better profits. What makes our Stop-Loss tool especially powerful (and unique) is that it is a dual-stop system. Our system includes both a main Stop Line and a Tight-Stop Line. This dual-stop feature lets you achieve a very nice balance between two conflicting objectives -- taking nice profits while you still have them, yet also giving a winning trade enough room to run its course. You ll see what we mean in the examples which follow. Tight-Stop Line Stop Line CL09U (02/10 06/12/09) Stop Line and Tight-Stop Line The Stop Line is always present when a trade is in progress. If a trend develops, and the trend is moderately strong, then the Tight-Stop Line will appear on the chart. The starting point of the Tight-Stop Line will be several bars into the trade. This starting point will vary from trade to trade. It will depend on the strength of the trend, and the volatility of the price action.

42 Section 8 Exit Tools pg. 42 Take Profits, or Let it Ride? This is always the decision to make when you re trading. But now that SMR Pro provides a dual-stop system, you don t have to decide. You can do BOTH. Sell 1 Here Sell 1 Here Buy 2 Here CL09U (03/04 07/06/09) Buy 2 -- Sell 1 at Tight-Stop, Sell 1 at Normal Stop With a dual-stop system, you can take profits on a portion of your trade at the Tight-Stop Line. You can then allow the remainder of your trade to ride until it hits the main Stop Line. When you re trading more than 2 contracts, use your judgement to decide how much to take off the table at the Tight-Stop. If you think the trend is probably near its end, take off more than half. If you think there s still a good chance for another strong move, take off less than half. To Adjust or Not To Adjust Of course, you can always use the Stop-Loss values that SMR Pro generates any way you see fit. You can use the exact numbers given by the system, or you can adjust them up or down according to your own preference. After you have used these Stop Lines in actual trading for a while, you may decide you want to stick pretty closely to the generated values, at least most of the time. Anyway, that s the way we see it, after looking at lots of charts with these Stop Lines. They appear to work very well over a variety of markets and trend conditions.

43 Exit Tools Section 8 pg. 43 More Stop-Loss Examples Take Partial Profits from First Trade Here Exit All Positions Here Take Partial Profits from Second Trade Here st 1 Entry 2nd Entry BP09U (03/17 07/17/09) Bullish Trend with 2 Entries and 3 Exits This chart shows a bullish trend in the British Pound. We enter the market at two places. We then take partial profits from the first trade using the first Tight-Stop Line. We take partial profits from the second trade using the second Tight-Stop Line. Finally, we exit all remaining positions, from both trades, using the Stop Line. Notice that, a few days after the second trade entry, we use the same Stop Line for both the first and second trades.

44 Exit Tools Section 8 pg. 44 More Stop-Loss Examples Stop Line for 2nd and 3rd Trades Tight-Stop Line for 1st Trade Tight-Stop Line for 2nd Trade Tight-Stop Line for 3rd Trade CL09G (08/12/08 01/08/09) Big Bear Move with Multiple Entries and Exits In the short-side Crude Oil example above, you can see how letting a portion of your trade continue to ride underneath the normal Stop Line helps you catch a huge downward price move.

45 Section 8 Exit Tools pg. 45 More Stop-Loss Examples ND09U (02/24 05/15/09) Drawing a Tight-Stop Trend Line in a Shallow Trend Don t Hesitate to Draw The Line Sometimes a trend is not strong enough for the Tight-Stop Line to kick in. If you don t get a Tight-Stop Line on your chart, but you d still like to use the dual-stop technique, then you can draw your own Tight-Stop Line. This is an especially good strategy when the price action forms an obvious support or resistance line, as in the example above.

46 Exit Tools Section 8 pg. 46 Adding Stop Lines to the Chart Stop Lines appear on your chart when you enter a trade into the system. Just double-click on your chart to open the Trade List Editor NOTE: You can double-click on any Daily Chart to open the Trade List Editor 5 6 INITIAL STOP: Enter or adjust any one of these, and the rest are automatically calculated for you The Stop Lines are custom-tailored to your unique trade information. All you need to do is enter your initial trade parameters into the system, and SMR Pro will take it from there. At the end of each trading day, you ll get updated trailing-stop values to use for the next day s trading. Use the Trade List Editor to enter: 1) the Date of the trade 2) the Trade Quantity (number of contracts or shares) 3) whether the trade is Long or Short 4) the type of Entry Signal, for example, Buy T (T = First Turn) or Sell 4 (4 = Type 4) NOTE: the Entry Signal type is for your information and tracking only, and does not affect the stop-loss values that SMR Pro generates 5) the Fill Price 6) the Initial Stop value NOTE: Enter any one of the four parameters shown in the red outline above. The rest will be automatically adjusted for you. For example, you may want to risk 1.6 Stop Points, or you may want to risk $500, or you may want to risk 2.5%. You get to choose which way to enter your initial stop/initial risk. 7) click on Add To Trade List FUTURES vs. STOCKS Accounts SMR Pro will track your FUTURES and STOCKS trading as two completely separate accounts. Just select FUTURES or STOCKS (in the top-left of the Trade List Editor) before entering or editing your trades and capital information.

47 Section 8 Exit Tools pg. 47 Getting Your Updated Trailing Stops Info SMR Pro will display updated trailing stop values for all your open trades. These trailing stops are re-calculated at the end of each trading day. Just open the Trade List Editor to view the updated Stop values. You ll see these in the Trade List table, which is displayed in the lower half of the Trade List Editor. In the example above, the trade for CL09U has both a Stop value (under the Stop column) and a Tight-Stop value (under the T-Stop column). The trade for BP09U has only a Stop value, which means that a Tight-Stop is not present for this trade on this date. You can also view the latest Stop and T-Stop values on the chart itself. You ll find these at the bottom of the chart, in the Status Bar. Move your cursor on, or past, the last bar on the chart. You ll see the next day s Stop and T-Stop values displayed in the Status Bar (at the bottom of the chart).

48 Exit Tools Section 8 pg. 48 Entering your Trade Exit Info When you enter a trade, the SMR Stop Lines will be drawn on your chart. These lines will continue each trading day until you tell the system that you have exited the trade. You do this by entering the exit info into the Trade Exits window. NOTE: SMR Pro does not assume that your trade has been stopped out, even if the chart indicates that a price bar has penetrated your Stop Line. Why? Well, for instance, you may have placed your actual stop order somewhere below the Stop Line, or you may not have placed a physical stop order at all. So, the system assumes that the Stop Line is still needed, until its information says that the position has been fully closed. From the Trade List Editor, click on a trade in the Trade List to select it. Then click Edit Trade Exits. Next, Click on Edit Trade Exits First, Click on a Trade to Highlight it This will bring up the Trade Exits window. (see next page)

49 Section 8 Exit Tools pg. 49 Entering your Trade Exit Info (cont d) In the top section (Entry Info), you can scroll through all the Trade Entries that you have already entered into the system. You may enter multiple trade exits for a single trade entry. In the above example for March 2010 Sugar, we sold: 1 contract on Aug contract on Aug contracts on Sept. 4 You can also enter multiple exits on the same date, at different price exit levels. You can also enter the type of stop. This is for your information only. Stop = Stop Line exit T-Stop = Tight Stop Line exit Discr = Discretionary exit

50 Section 8 Exit Tools pg. 50 Paper-Trading System Click on the Edit Capital Info button to name your account and enter the Initial Capital The Trade List Editor makes a very slick built-in Paper-Trading System. Since you can set up 3 different Futures accounts, and 3 different Stock accounts, you have plenty of room to set up an account or two for practice trading. In the example above, we have created a Futures trading account called Futures Paper Trades. Enter your trade entries and exits just as you would enter your real trades. The system will automatically calculate your profits, losses, and Current Capital. It will track open as well as closed trade positions.

51 Exit Tools Section 8 pg. 51 Using the SLX Indicator as an Exit Tool As you get more familiar with how the SLX and SLT Indicators work, you can use them to help you protect part of your profits at the end of good price moves. The SLX Indicator can be used as a Exit tool as well as an Entry tool. SLX Indicator Exit Here Here s an example of how we can use the SLX Indicator to exit a Long trade just as the SL crosses down below the DL. Notice how the SLX line gets closer to the price action as the SL moves closer to the DL. SLX Indicator Exit Here Here s a nice example of how we can use the SLX Indicator to exit a Short trade just as the SL crosses up above the DL. Again, notice how the SLX line gets closer to the price action as the SL moves closer to the DL

52 Exit Tools Section 8 pg. 52 Using the SLT Indicator as an Exit Tool The SLT Indicator can also be used to protect a portion of your profits at the end of a good price move. Think of the SLT and SLX Indicators as Tight Stop Lines. The SLT Indicator can also be used as a very good Exit tool. SLT Indicator On a Long Trade, we can use the SLT to exit the trade just as the SL Turns DOWN. Exit Here, Just when the SL Turns DOWN SLT Indicator On a Short Trade, we can use the SLT to exit the trade just as the SL Turns UP. Exit Here, Just when the SL Turns UP

53 Section 10 Weekly Charts pg. 53 SECTION 10 Weekly Charts Viewing the Weekly Charts is an excellent way to get a big picture look at a market, the kind of perspective that you can t get from just looking at the Daily Charts. SMR Pro provides a number of tools that are specifically designed for sizing up the weekly chart: The Weekly Trend Bias The CTI Indicator The Weekly CTI Momentum Report In addition to these tools, we ll also show examples of the kinds of set-ups and chart patterns that are especially valuable to look for on the Weekly charts.

54 Section 10 Weekly Charts pg. 54 The Weekly Trend Bias Weekly Crude Oil (11/24/ /17/2009) The Weekly Trend Bias uses colored bars to indicate the trend on the Weekly charts. It just provides some extra confirmation to use in conjunction with the TrendRider on the Daily charts. To turn on this feature, and to set the colors, use the Set Bar Color function under the Colors menu. NOTE: The Weekly Tend Bias in one of the Columns you ll see on the SMR Momentum Report.

55 Section 10 Weekly Charts pg. 55 The CTI Indicator The CTI Indicator On some trades, you may want to keep a portion (20-25%) of your trade open while the Weekly CTI is heading in the same direction. This is a way to catch some occasional big moves. Weekly US 30-Year Bonds (08/15/ /22/2010) Use the CTI Button at the bottom of the chart to turn the CTI Indicator ON and OFF The CTI is a proprietary SMR oscillator. It stands for Close Tracking Indicator. It is designed to closely follow the price action, while also smoothing out the wiggles in the indicator action. We have found that it is especially useful on the Weekly charts. We use the direction of the CTI 3 ways: 1. To help confirm the primary trend of the market 2. To alert us of a possible change in the primary trend 3. To help us ride some big price moves (as shown in the chart above)

56 Section 10 Weekly Charts pg. 56 SMR Momentum Report Weekly CTI Momentum Select the Weekly CTI Momentum Report Select a BULLISH or BEARISH Report The Weekly CTI Momentum Report sorts the charts. 1) By the number of weeks that the CTI has been heading UP (for a Bullish report) or DOWN (for a Bearish report). 2) By the Weekly Relative Strength rating of the chart The column labeled Weekly CTI Count indicates the number of weeks that the CTI has been heading in the same direction. By looking at the Weekly charts with a Weekly CTI Count between 1 and 3, for instance, we can be alerted to a possible change in the primary trend. We can also look for strong, well established trends by looking for Weekly CTI Counts that are 6 and above.

57 Section 10 Weekly Charts pg. 57 First Turn Signals on the Weekly First Turn Buy Weekly Gold (06/15/ /22/2010) The First Turn set-up on the Weekly chart can often mark a very long-term Low or High. Here s a very nice example on the Weekly Gold chart. Even though the 49-MA is very flat at the point of the turn, the First Turn does a great job at marking a long-term trade-able Low.

58 Section 10 Weekly Charts pg. 58 The A, B, C Buy/Sell Signals on the Weekly Sell B Buy B Buy B Weekly Aussie Dollar (03/03/ /28/2007) The A, B, and C Buy/Sell Signals often do an excellent job at marking Highs and Lows on the Weekly Charts. To turn these signals On and Off, use the Show Buy/Sell Signals function under the View menu.

59 Section 10 Weekly Charts pg. 59 Chart Patterns on the Weekly SL Pullback SL Spike Weekly Aussie Dollar (03/03/ /28/2007) On the Weekly charts, keep an eye out for the same kinds of chart patterns that we look for on the Daily charts. Here s another look at the same Weekly Australian Dollar chart we saw on the previous page. Notice how well both the SL Pullback and the SL Spike work out on this chart.

60 Section 10 Weekly Charts pg. 60 SL Divergences on the Weekly Here is an example of a Bearish Divergence on a Weekly chart. We don t see as many divergences on the long-term charts as we do on the Daily charts. When they do occur, however, you should pay close attention to them. They can alert you to some very big changes in the trend. Notice how hard and fast the market sells off after this Bearish Divergence was signaled.